David, thanks for taking the time. Kicking off, is it time to stop worrying about inflation?
We’ve been unable to ignore it in recent months. But looking forward, that may no longer be the case as, more and more, inflation looks to be low and stable.
That should allow central banks the leeway to cut interest rates, as we are now seeing, and reduce debt costs.
Inflation is likely to remain inside what we consider normal ranges. But the risk of re-emergence means making provisions remains important. Stress-testing against any resurgence in inflation would be wise.
If higher inflation does arise, and is due to external factors, central bankers may “look through” the spike and not raise interest rates again.
The base case is for interest rates in most markets, with the exception of Japan, to be cut in 2025 and 2026. There’s uncertainty still about the magnitude and pace of cuts. For sure, it’s a more stable planning environment than we’ve had for a number of years.
Expectations of lower future debt costs may cause leveraged buyers to delay transactions, as they await a better rate, but this carries a risk of missing out on the best opportunities.